The inquirer represents an individual or individuals who are pursuing settlement with an alleged tortfeasor which pays only on one date; thus, payment of an agreed upon settlement is delayed to a future time. These deferred settlements are offered by SEPTA and the New Jersey Joint Underwriting Agency/Market Transition Facility, inter alia. In some instances, clients wish to sell or factor their settlement for immediate payment, and there are available companies to buy either the entire settlement, the client's portion or the attorney's portion.
The question the inquirer presents is whether, for a client where such a settlement has been entered and the client does wish to factor his or her portion of the settlement, the attorney may directly purchase the client's portion of the settlement?
The Committee believes that the answer is yes, so long as there is scrupulous compliance with Pennsylvania Rules of Professional Conduct 2.1, 1.7 and 1.8. Such compliance would prohibit the lawyer from factoring the settlement on any basis which is less favorable to the client than the best terms which could have been negotiated with the tortfeasor or with any independent funding company. Proof of such compliance may be difficult if the transaction is later questioned.
First, Rule 2.1 requires the attorney to exercise independent professional judgment and render candid advice. Thus compliance with Rules 1.7 and 1.8 must always conform to the principles of independence and candor.
Second, the comment to Rule 1.7 (on the general rule of conflict of interest) is controlling here:
Loyalty is an essential element in the lawyer's relationship to a client.... Loyalty to a client is also impaired when a lawyer cannot consider, recommend or carry out an appropriate course of action for the client because of the lawyer's other responsibilities or interest.
Finally, Rule 1.8 provides as follows:
Conflict of Interest: Prohibited Transactions
(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
(1) the transaction and terms on which the lawyer acquires the interests are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client;
(2) the client is advised and is given a reasonable opportunity to seek the advise of independent counsel in the transaction; and
(3) the client consents in writing thereto.
If any of the terms under which the settlement is factored by counsel are less favorable than alterative settlement arrangements, then it would be difficult for counsel to sustain their burden or proof that the terms had been fully disclosed in a manner reasonably understood by the client. The obvious question would be: why would the client accept less than the most favorable terms?
Thus, in order to prove compliance with Rule 1.8, counsel may want to document attempts to negotiate immediate payment. For example, the inquirer notes that deferral is often not negotiable with SEPTA, which implies that sometimes it is.
The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.